To get around nuclear liability, government mulls an insurance fund

NEW DELHI: The Indian government is working on a way around the nuclear liability impasse — with a specific insurance product tentatively named India nuclear insurance fund. Both Indian industry and US officials have been sounded out on the provisions which are still in the making. While there remains a great deal of skepticism about whether this new insurance fund will pass muster, it’s the only option the government has right now.

On Monday, finance minister Arun Jaitley acknowledging that there was a problem with the liability law, said the act that was passed in 2010 was worked on equally by both opposition ( BJP) and ruling coalition (UPA), therefore all sides were equally responsible for the provisions.

Releasing a new report by a legal think tank Vidhi Centre for Legal Policy on the changes necessary to operationalise India’s nuclear agreements, Jaitley refused to commit himself to taking a stand on the liability law which has become controversial. While foreign suppliers have complained the collateral damage of the Act has been Indian nuclear industry, which is only now raising its concerns and refusing to supply to Indian nuclear plants under the Act.

Sources said despite the best intentions, government is not likely to move towards amendment of the Act right away. Firstly, they don’t have majority in Rajya Sabha and if they have to expend political capital the government would rather do it for more important economic legislation. Second, the government is not yet fully convinced that amending the Act is at all necessary, because at every political level, there is a sense that some amount of supplier liability should be retained.

The think tank report recommends that the offending section of the Act, Section 17(b), (which gives a right of recourse against suppliers) should be better defined by clarifying limitations on liability, and section 46 (which states that victims can also sue suppliers under other laws as well, such as the law of tort) should be limited to criminal liability provisions on, which means that the law should clarify that compensation should be sought by victims of a nuclear incident only under the nuclear liability act and not any other law.

The new fund being contemplated by the government would work somewhat like this – the government would advance a soft loan to General Insurance, which will operate the insurance fund. The rest of the amount (the operator, in this case, government entity NPCIL has to make an initial no-fault payout of 300 million SDRs or Rs 1500 crore) would come from premiums that suppliers would pay when they purchase insurance, a small insurance cess from sale of electricity etc. Slowly the fund would build up with every new reactor and every piece of equipment bought as well as every unit of power sold. The government envisages a fund pool running into millions of dollars like in the US, which also functions on a similar system.

While the government is hoping the new way out would be acceptable to all concerned, it is also pushing the US to complete the administrative arrangements of the nuclear deal, which has left it incomplete. Indian and US officials met in December in Delhi to work on the outstanding issues, sources said, hoping to seal the agreement by the time Obama visits. The US agreement is important for India not merely because it’s the most important, it will also be the template for similar agreement with Japan and partly, Australia.

On Monday, Jaitley also kicked off the first discussion on the contentious liability law, beginning a more informed debate on the subject.

In the ensuing discussion, Justice AP Shah said while he was personally opposed to nuclear energy per se, in his opinion the liability act was flawed on may counts and needed to be amended.

However, former chairman, AEC, Srikumar Banerjee and R.B. Grover, both involved in negotiating the minutiae of the nuclear deal and the liability Act stressed there was nothing fundamentally wrong with the Liability Act. The only issue that needed to be worked on was the issue of insurance. Grover also clarified that entities like NPCIL and Bhavini (which are nuclear operators), are actually the suppliers because Indian companies merely fabricate the components of a nuclear plant based on the specifications and design supplied by them. Therefore Indian companies should not be categorized as “”suppliers”” but “”vendors.”” No one is clear whether this would stand in court.

The criticism against the Act on behalf of Indian suppliers was made by Y. S. Trivedi of L&T, one of the Indian companies supplying components for India’s nuclear program. He said the law imposes disproportionate liability and risk on the supplier, affecting its credit worthiness. The UPA government had recognized the problems created by the Act, so in the rules put out in 2011, they tried to cap the liability.

Here a strong division has cropped up between the technical experts on the one end and legal and diplomatic experts on the other. Former ambassador to the U.S., Ronen Sen said the Indian situation could not be compared to other non nuclear nations like Austria or Chile. Instead, while developing the Indian nuclear sector, it was important to keep in mind the fact that ultimately all legal provisions should go towards enabling Indian manufacture rather than focussing on foreign suppliers.